Ghosts of 2022

As I've stated aplenty herein in writing and in the videos of late, we remain constructive on equities, but with a relatively short window of confidence -- that being into late this year/early next... The ultimate headwind that we've assigned high odds of developing is precisely the one that is troubling markets as I type this morning.

In a nutshell, our view in January was that when we add up record tax refunds, a recession-level budget deficit (huge net govt spending), a new Fed chair who's appointment would come with some serious strings attached, and whatever else an administration heading toward a mid-term election can conjure up to make voters happy -- well, sure, that "should" be a recipe for higher equity prices in 2026.

On Fed Incentives, And Your Complete (and Important) Weekly Macro Rundown

According to macro analyst, liquidity expert and research provider Michael Howell in this week's Macrovoices podcast, the odds of the fed hiking interest rates relatively soon are exceedingly high... As you'll see in the following, I don't entirely sympathize.

He cites the predictive ability of 2-year treasury yields: 

"It's correct 85% of the time."

And on that I concur, as this is an indicator we have tracked very closely for years.

Here's our chart (orange line = 2yr yield, white line = fed funds rate)... Note how the current setup -- historically-speaking -- virtually assures a coming fed hike:

Some Caution on the Favorable Inflation Prints, Why We Like the Yen (again), And a Few Other Things

Lots to consider this week (underneath the headlines) in terms of data, the Fed, geopolitics, yada yada.

Thus, this weekend's macro analysis will be robust.

In the meantime, the following note will bring you up to speed.

Must-Read Macro Note

Our intro to this week's macro roundup consists simply of a handful of key/telling market highlights from my commentary over the past couple of weeks.

If you’d truly like to glimpse the forest through the trees, the macro note itself -- in terms of what’s happening below the surface and how we’re positioned for it -- is a must-read!  

This Fed is Different, AI's Inflation Impact, Gold Setup, etc (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Divergence

Now, make no mistake, I'm not complaining! I can't not like the results so far this week... That said, the under-the-surface dynamics are not remotely confirming what the headlines portend.

For example: The top panel is the S&P 500... The upward trend line captures the past 4 trading days, including today... The second panel measures the number of advancing stocks in the index vs the decliners through yesterday:

That's what's called a negative or "bearish" divergence.

As for today, so far, breadth isn't terrible, with roughly 65%/35% up vs down stocks, but still not all boats rising with the tide.

As for the sectors, once again, under the headline surface there are losses being taken in 5 of the 11 major sectors as I type:

Nothing to get too excited about, just what I view as a late-cycle dynamic to respect.

Crosscurrents!

This week's note offers important insight into what's developing at and below the surface... I.e., while our PWA Index shows real, and legitimate, signs of life, there remain underlying crosscurrents that to some extent muddy the overall go-forward macro setup.

As for the equity market, as I emphasized herein during the week, on the surface (the S&P 500) stocks ended up churning out a nice showing:

While, below the surface, not so much!

6 of the 11 sectors are finishing (as I type, 40 minutes before the close on Friday) in the red:

I.e., thanks to Amazon, and Alphabet -- moving the consumer discretionary and communication sectors up a ton -- the headline tape essentially misrepresents the overall message of the market for the week.

Said message being, the late-cycle is a period of heightened uncertainty and speculation, often characterized by aggressive rotations... This particular instance being exacerbated by a seriously-stressed geopolitical backdrop.

Here's this week's PWA Index scoring summary, followed by our latest important macro deep dive (clients, this is a must-read):

The Tape Is Lying To You; Day 2

Now, to be sure, there have been many days of late deserving of a post titled The Tape is Lying, it's just that yesterday's and so far today's unusually so.

As I type, 6:40am PDT, the Dow is clinging to a 90-point gain, while the S&P 500 and the Nasdaq 100 are up by 0.17% and 0.55% respectively, so the market's up, albeit slightly, right?

Well, actually, no... Or, not mostly, I should say.

While, thanks to Amazon, our consumer discretionary position is up a very nice 2.7%, and Microsoft is delivering a second day of gains, up 2% so far this morning, virtually everything else is either essentially flat, or down a little, or a lot... The latter among US sectors being, materials -2.4%, staples -0.81%, healthcare -1.17%, financials -0.26%, industrials -0.76%, tech -0.47%... Even small caps -0.,74%, gold -2%, silver -3.2%, metals miners -1.34% are taking a hit this morning as well.

So, again, while the headline tape reads green (although, as I continue to type, the Dow has given it up, and the S&P is hugging the flatline), the broader complex of risk assets reads red, pretty much across the board.

In a nutshell, today's market is searching for direction amid what would be late-cycle dynamics exacerbated by a geopolitical situation that itself is sorely in need of direction -- or, let's say, in need of a durable solution.

Of course there's lots going on under the surface, described succinctly in the following:

The Tape Is Lying To You -- Or, "World" Being the Key Word

 I opened Tuesday's morning note with the following:

"It's days like today where stock-watchers bemoan diversification... I.e., it's been my observation over the past 40+ years of doing what I do that folks tend to see their long-term portfolios as extensions of the US equity market."

Well if all I did this morning was look at the table below, I might say, dang, another day to bemoan for the diversified investor.

US sectors on the left, the percent move so far this morning on the right:

Here you have the (cap-weighted) S&P 500 up over 1%, yet, remarkably, 8 of the 11 sectors are actually in the red, and save for financials and utilities, by not-small amounts (hence the title of this post).  In fact the S&P 500 Equal Weight Index (all the same stocks, but equal treatment of each) is down 1% as I type.

And while our core strategy indeed has a healthy-enough allocation to tech -- by itself, certainly not enough to meaningfully offset the hits to, say, healthcare and staples, which also (healthcare in particular) represent healthy weightings in our core.

However, somehow, at least as I type, we're actually capturing roughly 90% of the rise in the cap-weighted S&P 500.

So how in the world can that be? Given that I've emphasized the uber-diversification of our current strategy?

Well, key word there being "world."  Remember, we call ourselves a top down global macro money manager (with theses developed around every single position [meaning we absolutely do not use a shotgun to determine our asset mix]), and, this morning, when we look outside the US we're seeing some pretty dramatic (in one-day terms) upside action.

Our Eurozone exposure, for example, is up 2.45%, our Asia-Pac aggregated position is up 3.6%, our Japanese equity exposure by itself is up 3.2%, South Africa, Brazil and Mexico respectively are up 2.4%, 1.5% and 1.9%, yada yada... Then there are the commodity-related exposures: Uranium miners are up 3.8%, diversified miners are up 2.75%, gold up 1.3%, silver (recently added it back) up 2.5%... Among our individual equity positions, the one that really jumps off the page is recent-addition Microsoft, up a whopping 15% as I type... Not to mention, Applied Materials (a bit smaller weighting than MSFT) up 13.5%... Although we're hedging Applied Materials (AMAT) with a put option that is effectively mitigating todays move by ~6%... By the way, the AMAT put itself is nevertheless still up 69.9% since we put it on.

Anyways, let's put today into its proper perspective... For one, my report above simply illustrates, live, the potential virtues of our current strategy, and our longer-term view of the world right here... And, alas, by the end of today's session, or even by the time you receive this note (scheduled to hit your inbox an hour from now), all this happy stuff could very well have turned on its head -- based on the wild intraday action we've witnessed of late!

In the meantime, here's the bigger picture stuff that matters.

Morning Note

Given this week's calendar one might surmise that this morning's notable selloff in equities reflects worries that the Fed will lean hawkish (though they won't raise rates today), and that key tech earnings after the bell perhaps won't live up to historically-high expectations.

Well, sure, no doubt those are doubts worth mulling, but, clearly, the culprit today is yesterday's surprise attacks delivered by Iran, alongside this morning's news that oil inventories took a massive hit the last week of July... Make no mistake, strategic reserves are virtually spent at this point -- oil's up 7% as I type!

We're having a private session this morning with the head of the geopolitical team we consult with, which will likely give us more texture/context to share later in the week.

In the meantime, here's your morning macro rundown*... Clients take note of the final section titled "How We're Positioned."

Morning Note

It's days like today where stock-watchers bemoan diversification... I.e., it's been my observation over the past 40+ years of doing what I do that folks tend to see their long-term portfolios as extensions of the US equity market.

For many, if not most, US investors, I do believe that's a reasonable impulse... But for today's PWA client, well, no... In our view, particularly late in the cycle (i.e., now), broad sector, regional and asset class diversification is the definition of responsible portfolio construction.

Now, of course that's not simply shot-gunning your money across everything that moves, we do have theses that we "work" every day across different time frames... Meaning, we'll have a near-term view that may inspire the hedging of -- or the leaning into -- a position that happens to jibe perfectly with our long-term thesis, yet we see high odds of meaningful short-term turbulence... Consequently, as you clients have noticed, we'll see days, or stretches of days/weeks, where our strategy deviates -- in either direction -- from the moves in the ever-watched US stock market.

Today could be viewed as one of those days, although even the US stock market itself is all over the place.

As I type the S&P 500 is, albeit slightly, red on the session while the Dow is up nearly 400 points... Yet the Nasdaq 100 is getting slammed, down 1.5% (the equivalent of 750 Dow points).

Commodities, including precious metals, are going the way of the Nasdaq, down notably (save for ag) nearly across the board.

Consequently, if your portfolio is the size that gets the full complement of our globally-diversified core allocation, it's basically flat as I type... So I guess you can say it's going the way of the stock market, but only if you're looking at the S&P 500.

There's lots to unpack this week in terms of data, earnings and central bank decisions, so expect to hear from me aplenty as it all unfolds.

In the meantime, here's your morning rundown*... Definitely click the link and take this one in, it's an important read for clients:

Your 'Important' Weekly Rundown

Per your weekly macro roundup below, markets are pricing up the odds of a Fed response to the latest upward pressures on inflation.

Fed funds futures are currently discounting a 100% chance of a hike at the September meeting, and a 76% chance of yet another one by year-end:

While, presumably, the read from CPI swaps reflects belief that near-term Fed tightening will work to subdue go-forward inflation.

2, 5 and 10-year spreads:

Or, one might argue that swaps are reading an oil curve that anticipates notably lower go-forward pricing, as now-depleted strategic petroleum reserves pressure a near-term ceasefire. 

Of course I can push back there as well, as there'll be notable future demand for oil as those reserves (and some, I suspect) will need to be replenished over the next 1-2 years... Add to that the current state of policy affairs (running a large fiscal deficit alongside what I expect will be an accommodative Fed), and you get very little relief by way of a slowing economy, and structurally higher go-forward inflation as a result.

As I type, weekend headlines are hinting:

Morning Note: Repricing Present Risk

 In Tuesday's morning note I wrote:

"As you've noticed, the Middle East conflict has heated back up markedly of late; interesting that risk assets, while taking somewhat of a hit last week (which may have been more about AI concerns than it was about Iran worries), have overall been holding up, I'd say remarkably well.

We can speculate whether, as is often the case, that's due to the sense that, as scary as they often seem, markets conclude that modern-day geopolitical frictions (even when they're kinetic) don't end up moving the needle as one might expect -- or is it that, in this instance, as long as the price of oil stays, say, sub-100ish, current general conditions are sufficiently positive to absorb the cost? Or is it the legitimate belief/understanding that the US administration will aggressively calm the waters if/when markets begin to crack -- thus leaving investors sanguine, and unwilling to capitulate to scary headlines?"

Well, while there were a couple of heavyweight outlook concerns expressed last evening, the market action this morning is hinting that oil "sub-100ish" may indeed go some distance in terms of explaining the relative sanguineness we've noticed in markets of late... I.e., as I type, global equities, save for those energy and healthcare (a presently meaningful weight in our core allocation)-related, along with precious metals and bonds are getting pretty well-hammered, as Brent crude is fetching $100.16/barrel (+6.1% on the morning), while WTI is trading at $91.40 (+4.6%).. Those are big one-day % moves, and, clearly, markets have noticed.

Morning Note

As I've maintained since the beginning of the year, even throughout the Middle East conflict, we remain (for the moment) constructive on global equities. 

Although that sentiment is on a pretty short leash... I've also maintained that we see not-small headwinds developing (per the 3rd paragraph in your morning wrap below) as we meander into the end of this year and on into next.

As for this morning, markets, save for bonds, are catching a bit of a bid... In terms of equities, this morning's bump embodies the selective character we've been noting of late.

Per Bloomberg's IMAP screen below, just roughly 40% of S&P 500 constituents are in the green thus far, while 4 sectors are either flat or in the red:

While the laggards, save for utilities, are meaningful weights in our core strategy, our commodity and non-US exposures are more than making up the difference thus far.

Bigger picture: As you've noticed, the Middle East conflict has heated back up markedly of late; interesting that risk assets, while taking somewhat of a hit last week (which may have been more about AI concerns than it was about Iran worries), have overall been holding up, I'd say remarkably well.

Offsetting Forces, and a Reprieve That (for now) Looks Short-Lived

The last line in our weekly macro note below captures how to be thinking about the immediate-term setup for markets:

"...the forces at work are large, and, for now, offsetting."

The short-lived reprieve I alluded to in the title is all about the latest inflation print and go-forward sentiment... The inflation print captured the US/Iran memo-of-understanding-inspired comedown in energy prices, while improved sentiment I suspect was largely inspired by the same... But, as I type, alas, the war is back on in notable force and energy prices are consequently back up, big!

Gasoline (the X marks July 1):

And, as you've likely noticed -- while other forces are in play as well (see yesterday's note) -- the stock market has taken notice.

The S&P 500 last week: 

Next week is relatively calm on the data front (although likely to be very volatile on the Hormuz front)... The following week features the Fed and the Bank of Japan respective meetings... While both are of course key to the ongoing assessment of go-forward probabilities, at this juncture markets will be hyper-focused on the latter... More on that to come herein.

In the meantime, here's your summary of our weekly PWA Index scoring, followed by this week's macro note* to clients:

Wildcards

Per the below, the tech space continues to suffer amid worries over the odds that the trillions being spent on AI will equate to sufficient future profits for those doing the spending, exacerbated overnight by competing developments out of China... While the Iran conflict remains a wildcard with political ramifications sufficient to keep the market anticipating compensating de-escalatory headlines every time things heat up (like the present). 

I'll circle back over the weekend with a macro deep dive.

In the meantime:

Under a Few Surfaces: Stocks, Gold, Silver, etc (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Lots On Our Radar

The equity market continues to trade, let's say, all over the place... The S&P 500 Dispersion Index (measures how differently the members of the index are moving from one another) sits at a level we haven't seen since the Covid panic... The shaded area denotes levels where the index itself (blue line) tends to struggle:

Of course this doesn't mean that serious pain is imminent, it's just one indicator that says, despite the title of last week's macro note below, turbulence exists below the market's calm (or perhaps complacent) surface.

Per the macro summary below*, there's presently lots to monitor showing up on our radar:

Important Morning Note

I'll be away from my desk this weekend, so look for the usual weekly wrap on Monday morning.

For today, we'll jump to the morning wrap, which is fairly robust and captures some of the essence of our go-forward thesis*:

No Smooth Paths From Here

Per the below, we maintain that it does not serve the overall interests of either side of the Iran conflict to resume all out war at this juncture... That said, the geopolitical experts whom we contract with are noticing that Iran seems to aggravate tensions pretty much whenever the price of oil dips below ~$70/barrel, suggesting that Iran's incentives (somewhat, if not largely political relative to the timing of the US election cycle) has them willing to push the needle to keep the stress on the US electorate elevated. 

Hence, the reason for this morning's broad global selloff outlined below.

When Headlines Move Markets: A Word on This Morning's Action*

A Rising Bar

Per the note below, tech stocks (with the exception of Microsoft, which we recently added to) are getting hammered today despite some remarkable, nearly breathtaking, good news from the world's largest memory-chip maker overnight.

Stocks falling on good news is, let's say, not a good sign... That said, chip stocks, that one in particular, have gone so far, so fast, that the proverbial "buy-the-rumor-sell-the-news" event was for certain priced into the cards.

The "healthy" news is that some rotation continues... I.e., while the global tech sector gets hammered, our healthcare, staples and communication exposures are up solidly, financials are up marginally.

The other issue rocking global markets today is the resumption of kinetic action in the Strait of Hormuz (details below) which is adding to the pain in virtually all things, save for the positives mentioned above.

Here's your morning macro rundown*:

Bad News/Good News

The latest labor data did a slight number on this week's PWA Index score... Although, overall, we continue to see very low recession risk for the foreseeable future.

And while the latter, all else equal, paints a favorable picture for equities, all else, alas, is never equal.

Note that the equity market popped higher on Thursday's release of the weaker than expected June payrolls data and the -74k prior months' revision... I.e., for that moment bad news (being disinflationary) was good news for stocks... However, while the Dow held up nicely, by the end of the session the S&P 500 finished dead even, and the Nasdaq was down nearly 1% -- reflecting continued angst over the ramifications (sustainability, debt financing, profitability, valuations, ancillary players, etc.) of the continued massive AI-buildout.

Not to say that we're not in the near-term bullish camp -- we actually (cautiously) are -- however, as I keep expressing, the setup gets sketchy later this year/into next... More on that herein to come.

In the meantime, here's your summary of this week's PWA Index scoring, followed by a succinct macro note*:

Searching for Signal

I'm feeling compelled to take you into the short-term weeds with me a bit this morning, but first note that we definitely do not react to noise... However, we do forever look for potential signal within said noise.

Today, like many other days of late, is particularly noisy, and I do believe there is some signal, or perhaps some harbinger of potential things to come within.

In a nutshell, while, as I continue to point out, we're generally constructive on risk assets at the moment, we do see potentially serious headwinds developing late this year and into next... I'll be putting the whys (it's multi-faceted) into narrative that I'll share in the coming days.

In the meantime, here's the gist on today's action and how we're viewing it... This expresses our view of the moment -- we're relatively sanguine -- and hints at where we think some of the future pressure will come from (read mega-cap tech):

Chart of the Day: Messy Under the Hood

Following up on yesterday's video commentary (be sure to watch if you haven't yet) around the action among sectors of late, here's a look at the S&P 500 Dispersion Index -- which measures how differently the members of the index are moving from one another.

The white line measures dispersion, the blue represents the index itself... Note that we are currently well within the the range where volatility tends to pick up, in a not-always favorable fashion:

A Timely Look at Equities, Yields, The Dollar, Gold, Oil, Fed Funds Odds and Sectors (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Weekly Roundup

While our narrative below acknowledges the Fed's latest messaging -- not only no rate cut in the offing, but, per fed funds futures odds, one hike fully priced later this year -- we see probabilities leaning against a rate hike between now and year end... Although, as implied below, we will continue to test our thesis and remain openminded to the possibility as we go.

At the same time, we actually believe that the perceived posture is on-balance warranted, based on our view of longer-term inflation reality... So it's not economic weakness that we necessarily see staying the Fed's hand, it's, frankly, our view of what the ultimate gameplan will be under its new leadership going forward.

Morning Note

We've flagged the longer-term AI capex concern multiple times, particular in video commentaries, over the past year or so...  Question today being, is the recent rout in tech stocks a signal that the market is finally sniffing out the risk that turning these hundreds of billions in AI infrastructure investment into sufficient revenue to justify it all may not occur in a market-friendly time horizon? 

Well, that's the case, at least per the headlines.

Next question being, is it the market simply putting investors on notice that the risk exists, only to come roaring back on the likes of Micron's earnings this week, or maybe something more concrete in terms of government entry (investment) into the AI space (as the president hinted after a recent Friday where said capex worry inspired the worst stock market selloff in a year)?

Answer: Time will tell... The last paragraph in the synopsis below speaks to how we're' managing the current setup.

Look for our weekly macro dive over the weekend -- I'll likely walk through some charts with you via video as well... The technicals are interesting right here.

In the meantime, here's your morning rundown*.

Messy

Suffice to say that markets have been trading in messy fashion of late... Correlations that you could count on since the beginning of the year were seemingly breaking down amid some notable rotation away from the ytd winners, into the losers (and the lagging winners).

Today, however, looks more like the previously established "norm." Gold, for one example, rising alongside rising equities, falling yields, and declining/stabilizing energy prices.

Per the synopsis below, this morning's inflation data came in hot, although at to slightly below expectations... Markets, for the moment, are trading that as a relief, alongside stellar earnings reported by Micron Technology last evening... The latter being an event that was approaching with great trepidation... Thus, additional relief there.

The real near-term tell will be whether or not today's rally gets faded over the coming days.

Our (always subject to change) current base case view remains constructive in the near-term -- say, July into October... We're less-sanguine beyond, based on current visibility.

In the meantime, here's today's morning rundown*: 

Thinking About Today's Uncomfortable Action

US technology, industrial and commodity stocks, along with pretty much the entire global equity complex, are seeing a notable selloff this morning. And while there are some pockets of strength (beneficiaries of some obvious rotation) -- financials, healthcare and consumer staples in particular -- the areas getting hit are essentially overwhelming the positives.

While indeed it is our view that we are now meandering through the late stage of the cycle, with its attendant volatility, our base case has remained overall constructive for the time being (specifically until we get into the latter part of this year and into next).

Those two words -- "attendant volatility" -- are the operative phrase at this juncture.

Here's how we're thinking about today's action*:

Morning Note

FYI clients, today happens to be "ex-dividend" day for a number of ETFs in our core allocation... Thus, for those of you who track this stuff daily, what you'll see today will be somewhat muted, as the affected ETFs will trade without the distributed quarterly dividend (i.e., lower), which will be credited back to your accounts this Wednesday.

In the meantime, here's a quick look* at the immediate-term setup:

Inflation Beyond Hormuz And, In the Meantime, Headline Whiplash

A break in our weekend festivities allowed me to finish up this week's macro commentary and get it to you on time after all... So here you go:

Regular readers will note my persistent (redundant, if you will) inflation commentary -- per your weekly rundown below... This is by design, for, at this juncture, I see the mainstream narrative (which is of course finding recent support as the oil price abates) around go-forward inflation to be rooted in a framework that simply doesn't express the populist-inspired-policy world we've morphed into, nor the related/attendant fiscal constraints, particularly in the US... So much so that it bears repeating, virtually ad nauseam!

As stated*:

The Wobble and The Focus

Despite market-friendly Middle East developments, investors yesterday were solely focused on the Federal Reserve board meeting, which they interpreted in a not-market-friendly way.

For me, the increasingly hawkish (inflation-fighting) sentiment among the members was no big surprise, but Warsh not effectively walking that back during the press conference was.

Now, saying that he'll be an aggressive inflation-fighting-via-higher-rates voice on the Fed is not my base case, given the dynamics I spelled out in yesterday's note... Specifically:

Fed Transparency and Constraints, and Some Highlights From Our Notes

For this morning's message I thought I'd just copy and share from additions to our internal log this week... The bulk of which happen to be a copy and pasting of the latest from one of our research sources, along with support, in one respect, for our long-term bullish gold thesis.

Of course, immediately-speaking, there's today's Fed meeting... To give you our take, here are some highlights from my part in a text conversation with a friend this morning... The topic being the supposed lack of communication to markets that the new chairman appears to advocate for going forward.

A Step Back From the Brink

While, as you've noticed in recent weeks, as diversified as it is, our core allocation can indeed experience quite the day-to-day volatility, in either direction.

This morning, of course, we're talking the direction everybody loves, and rightfully so... Per the note below, weekend events were resoundingly bullish for virtually all things, save for those that are energy/oil-related and economically defensive (read consumer staples and healthcare).

Speaking of oil, while the (yet to happen) opening of the Strait makes the price more palatable, make no mistake, over the course of the next few months a not-small quantity will go straight to storage (to replenish drawn inventory, and to establish new inventory in a world startled by how one actor can shut off meaningful supply), and, thus, not into the economy for consumption.

Your Weekly Roundup

While our synopsis below implies that (as recent data suggest) inflation should abate some when oil begins flowing, as I've flagged herein and in client meetings, a go-forward scenario where geopolitical risk becomes less prominent, and animal spirits ignite, will see demand for things beyond just oil rise broadly -- essentially keeping price-pressure (read inflation) very much alive and well.

I.e., suffice to say, the setup late this year into next may very well be characterized by a notable renewal in the rising inflation/interest rate trend, which can pose a serious headwind for risk assets.

In the meantime, it was quite the week last week for stocks.

S&P 500 Index 5-day chart:

Evening Rundown

Quite the eventful day today... Below is your evening rundown*. 

There'll be the usual deeper macro dive coming your way over the weekend:

Evening Note* — Thursday, June 11, 2026

A relief rally, and why the shape of our portfolio mattered

After a brutal Wednesday — when a three-year-high inflation print sent the major indexes to their lows — markets reversed hard today on signs that the Iran situation may be moving toward de-escalation. Reports out of Iranian state media suggested a deal is close, and risk assets responded in kind. The Russell 2000 led the way, up roughly 3%, with the Nasdaq (+2.5%), Dow (+1.9%), and S&P 500 (+1.75%) all posting healthy gains. The Dow climbed back above 50,000, and the market's "fear gauge," the VIX, fell nearly 12%.

Under the surface, the move had a distinct character. The leadership came from technology, industrials, and materials — the economically sensitive corners of the market that tend to do well when investors grow more confident. The laggards were the defensive and war-premium trades: energy, consumer staples, and real estate. In short, this was the market exhaling — unwinding the fear that had been priced in over weeks of Middle East tension.

How our core allocation behaved

Midweek Note

Per the synopsis below, along with our broad (although thematic) diversification, we manage an options strategy (for portfolios that, by size, qualify) designed to mitigate the major, protracted drawdowns... I.e., the pain we intend to quell is not the single digit % breaks the likes of which we saw last week -- although, indeed, there have been a number of instances when even those were notably muted -- it's the large, extended drawdowns that occur every so often in equity markets that we aim to quell.

So, in essence, and just to clarify, our goal is to mitigate said drawdowns while smartly capturing upside where it's to be had, which requires that we live through some, at times notable, downside volatility as a matter of course.

PWA Morning Note*: Wednesday, June 10, 2026 

---

The setup in one line

Your Weekly Roundup

Of course, given the latest action in markets, and the weekend headlines, there are bigger fish to fry in the minds of most people than last Friday's jobs report... That said, keep in mind, said report was not-small in terms of the conditions that characterized last week's swoon... Nevertheless, the world is waiting for tomorrow's opening market print with bated breath.

As I type, weekend markets are actually pointing to a (albeit slightly) green open for equities, for gold and even for bitcoin (which was also taken out to the woodshed last week)... Problem is, oil is up nearly 3% as well; which is contrary to what has been inspiring stocks, etc., in recent weeks... I.e., if all you would've told me is that oil's up 3% on a late June 2026 Sunday morning, I'd be telling you look out below come Monday's open!

How To Think About The Last Week In Markets (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Making Sense of This Week's Selloff

In yesterday's note I suggested that a good jobs number this morning could spell bad news for stocks:

"Suffice to say that it (a strong jobs number) has the potential to throw some cold water on our positive-resolution-will-lift-stocks thesis, but not in the way you might think... Meaning, if the jobs number is really good, and the Hormuz news says smooth sailing to come, there's a chance that yields could actually rise in response."

Well, the headline (+172k) number was nearly double the consensus expectation (+88k), and, yes, stocks are feeling it this morning... The S&P 500 is down a full 1% as I type, while the Nasdaq 100 is down a whopping 1.97%... The Dow, on the other hand, benefiting of late from a rotation out of tech and into healthcare and financial names in particular -- is only down 0.33%.

The Current "Macro Brew" And Its Late-Year Implications

Suffice to say that these days some of the "normal," if not reliable, market indicators don't carry the oomph they otherwise would were it not for the turmoil in the Middle East... You've noticed that we haven't been boring you of late with our technical analyses (videos)... Not that they don't matter, but, again, in times like these a headline can kill a high-probability setup in the blink of eye, or faster than a tick on a chart.

That said, tomorrows jobs report matters.

As I've expressed herein, we're constructive on equities right here, as political and economic risk strongly supports the notion that the Strait will be open sooner than later... That's unambiguously bullish for equities initially... Although, as I type, chip stocks are getting hammered on a handful of reports that question the durability of the AI driven bonanza  -- the Nasdaq 100 Index is down 1.24% this morning, which is dragging the S&P 500 down 0.23%, while the Dow is up 580 points... Of course that's rotation, explained by yet another glimmer of hope this morning that peace is on the horizon.

Pressure Is On

Per the summation below, last night's tariff (proposal) announcement should be viewed as symbolic in that it says that the Administration is, as promised, not willing to relent to sentiment nor the Supreme Court on tariffs.

I suspect that's pressuring global equities at the margin this morning -- while the main culprit remains the middle east conflict.

Rational Analysis Notwithstanding

Seldom do we find our view of overall general conditions as inline with one of our research providers as it is presently with that of MRB Partners... I.e., the following snippets from their latest research report should sound very familiar to clients and regular blog readers:  

emphasis mine...

"The tight correlation between oil prices and global financial asset markets continues on a daily basis, subject to the ever-changing odds of a deal to re-open the Strait of Hormuz."

Morning Note: Very Messy Under the Surface -- And -- On Stocks and Interest Rates

What was looking like a decent start to the month for global equities in the premarket, got sideswiped by newsflashes like the following:

"Iran Halts Indirect Talks With U.S. Over Lebanon and Gaza Ceasefire Violations - Tasnim News

• Iranian negotiation team to stop dialogue and text exchanges through intermediaries
•  Move follows alleged violations of ceasefire conditions, including in Lebanon
•  Iranian officials demand immediate halt to Israeli operations in Gaza and Lebanon
•  Iran also demands full Israeli withdrawal from occupied areas in Lebanon before talks resume
•  Iran and resistance front reportedly resolved to fully block the Strait of Hormuz
•  Other fronts, including the Bab al-Mandeb Strait, could also be activated in response"

Yes, markets remain focused on the Iran conflict, despite the major indices floating around their all-time highs... Like I said yesterday (below), the underlying dynamic suggests the market has grown skeptical of resolution prospects:

Not What You'd Expect

Back from a brief getaway, although I stayed somewhat abreast of market and economic happenings while I was away.

Just a quick observation on the US equity market... While it seems intuitive to credit the ascent to all-time highs for the S&P 500 to optimism that an Iran resolution is close at hand, the underneath action of late pours a little cold water on that assumption.

For starters, a solid, durable resolution would initially be bullish for virtually all things equities, save, initially, for the energy related.

Thing is, while the S&P had an impressive May (+5%), 7 of 11 key US equity sectors actually lost money during the month... And, of the 4 that were positive, tech (top green line below) -- on earnings and hype -- did 80% of the lifting... I.e., without its heavy concentration in the tech sector, the S&P would've lost money in May!  That's not the broad-based rip-your-face-off-rally you'd expect in an all's clear scenario:

Weekly Rundown -- And -- Perhaps Some FOMO To Come, But Then What?

Per the synopsis below, our general conditions assessment was less bad week-over-week... Although there's nothing therein thus far that suggests to us that conditions are about to turn robustly positive.

That said, we do remain overall constructive, particularly on equity markets, over the next several months -- assuming present geopolitical angst begins to abate sooner than later -- the market action/reaction on the related headlines and associated commentary make that an easy call.

As for the latter part of the year, and beyond, however, we have to consider what happens if suddenly we get to move on without the proverbial "wall of worry" that typically accompanies sustainable bull markets... I.e., without some worry -- that inspires holding cash, shorting stocks, staying underweight, etc. -- where's the juice to come from to keep the market buoyant after everybody FOMOs, or YOLOs, in?

Quote of the Day: "Second-Round Inflation Risk"

While at first blush today's US PMI release reads positive, particularly for manufacturing, the weeds essentially support the stagflationary story we've been telling.

How Markets Digest "Good News"

I concur with the below from BCA… And I’ll add that the setup described leads to a surprisingly broad misunderstanding among market participants about the interaction between economic conditions and markets… I.e., good economic news can be (often is) bad news for stocks based on what it portends for market-based interest rates and for go-forward monetary policy – particularly in an "inflation focused" environment. 

On the flipside, good news is good news typically when we’re earlier in the cycle -- when earnings expectations are less-robust and rates are not near cycle highs; which is clearly not today.

Notwithstanding -- per the last paragraph from me below -- the likely good-news-boost we'd see were the strait to open tomorrow (since, for the moment, geopolitics utterly dominates market sentiment)... Case in point the market bump that just occurred, literally a I type, on the following headline:   stocks middle panel

Evening Note: Never a Dull Moment!

 "Never a dull moment" is an understatement these days!

In our weekend rundown I hinted that we're exploring hedging some our non-US exposure based on the prospects for central banks tightening policy and the attendant market implications of such a move.

Here's that paragraph:

The Economy Is Growing. Prices Are Growing Faster...

Per the following synopsis, we maintain our view that recession risk remains low, despite a negative PWA Index print.

As you'll note below, there are real positives in spots among the data, while the inflation picture is nothing but negative... On net, this is that stagflationary risk we've been signaling for months.

As I've mentioned in virtually every client review of late, if we're having the same geopolitical conversation six months from now, we will likely have made notable adjustments along the way... Thus far, as you've gleaned from the volume of transaction confirmations of late, we're already actively adjusting at the margin.

While we're sitting right near our year-to-date peak, representing a very nice four-month gain in our core portfolio -- validating our overall strategy thus far -- Friday was nevertheless a rough day, as global equity, currency, and commodity markets suddenly cared about rising yields (read inflation risk), and are, thus, legitimately beginning to wonder if indeed a Hormuz resolution is at hand.

Here's your thorough weekly rundown:

Morning Note: China Talks Disappoint

The last paragraph in the rundown below does a good job describing the action among our core positions this morning.

The bottom line in terms of today's global selloff, also covered below, is the lack of any official message out of this week's US/China talks suggesting China is stepping in to assist in resolving the Iran situation... That'll no doubt at some point change if the Strait of Hormuz is not opened sooner than later.

We'll have a thorough macro update for you over the weekend.

In the meantime, here's this morning's rundown*:

Morning Note: The Goal

Following up on yesterday's hot CPI print, markets are wrestling with a scalding hot PPI (producer prices) report this morning.

Here's from Bespoke Investment Group's morning note:

"Headline PPI surged 1.4% - not y/y but m/m while the core reading surged 1.0% versus estimates for an increase of just 0.3%. The headline index was only forecast to increase 0.5%. PPI tends to be more volatile than CPI, but these numbers are hot, hot, hot. As you would expect, the immediate response in the futures market was for yields to spike higher while equities erased half of their pre-release gains."

We've maintained all along that the goal of the President's China trip this week is to come away with a warm embrace and all (or some) manner of win/wins on trade, etc... That's the goal anyway, and the following on the International Energy Agencies latest Oil Market Report* just adds additional incentive to that aim.

Morning Rundown

Virtually all things that have been working of late are taking quite the hit this morning. Oil importing regions and US tech stocks in particular.

Thus, days like these are ones we feel, given our current allocation… That said, clients, as you’ve noticed, we’ve been notably active of late... This morning, in fact, we reduced our US tech exposure by 30%, adding to US healthcare, financials, and communication stocks with the proceeds… The move essentially amounts to a rebalancing (a bit) away from an overextended area into notably under-appreciated sectors that have actionable theses in and of themselves.

Here’s this morning‘s macro rundown*:

K-Shaped YOLO

In yesterday's commentary I referenced the literally rock-bottom (all time low) state of consumer sentiment, per the UOM survey that began in 1952.

Now, allow me to turn that thought completely on its head and offer up last week's earnings call highlights from the venues that you'd think would be suffering mightily -- given how consumers reportedly feel about their current state of financial affairs (HT Peter Boockvar):

Macro Update: Think Again

Per our PWA Index summary below, the economy is sending very mixed signals:  The labor market remains relatively strong while consumer sentiment is literally in the gutter (blame inflation)... Business sentiment still reads expansion, however "input costs are rising sharply."

If you haven't had a chance yet, be sure to read my commentary from last Monday titled How Long Can the Economy Hold Up?  It will give you some insight into why the greatest oil supply disruption in history has yet to tilt the scale toward a US recession.

And if you're thinking -- like so many clearly are -- that once the Strait of Hormuz is back in business; that things (read oil prices) will return to normal, be sure and read Thursday's Quotes of the Day post, where I highlight Exxon's earnings call.

Also, alas, if you're thinking that this is all about just oil, you have to think again... Co-founder of the highly respected macro research firm Gavecal, Louis Vincent Gave, was on the MacroVoices podcast this week pointing out the following.

Quotes of the Day

On top of what I mentioned in last weekend's commentary,

"We maintain that a Mid-East resolution coming soon would likely give quite the boost to animal spirits, one that markets would initially cheer... The underlying inflation dynamic, however -- being a structural affair in our view -- will no doubt keep us on our toes going forward."

-- key phrase being "inflation being a structural affair," -- the following from Exxon's earnings call this week bolsters our view (HT Peter Boockvar):   emphasis mine...

Morning Note: Ferocious

As I type this morning, 45 minutes before the market open, equity and commodity futures are being traded, I'll say, ferociously... 

Here are the obvious market moving headlines:

• Iran's Revolutionary Guard's Navy, with the end of "threats from aggressors" and in light of new procedures, safe and stable transit through the strait will be possible - State Media
• US & Iran closing in on one-page memo to end war - Axios

Now, while "ferociously" does not necessarily mean ferociously higher -- particularly when we're talking oil, gas and ag futures, and related equities (they're tanking) -- the major averages being up close to 1% in the pre-market is nothing to sneeze add... It's the transaction volume that appears ferocious on my screen; suffice to say that traders are scrambling this morning… Other notables left out of the pre-market party are US consumer staples, utilities and healthcare -- call it rotation into growthier stuff.

How Long Can the Economy Hold Up?

I've fielded a number of questions over the past few weeks over the impact of higher oil prices (how long can the economy hold up?), as well as unsolicited comments over how the current shock is markedly worse vs the early-70s crisis, and how it ultimately has to end very badly -- economically-speaking.

With regard to the 70s, it's important to note that the economy's dependence on oil today is not remotely near what it was back then. 

And combine that -- per the following -- with the fact that the US is a net "energy" (not crude oil, btw) exporter, and that oil itself today supplies notably less of the world's energy needs vs back in the 70s:

Structural Shifts Since Then — The Three Big Changes

Your Weekly Wrap

Per the summary below, while our PWA Index score remains negative, the underlying dynamics are notably mixed.

While the inflation and inflation expectations reads are -- or should be -- a serious drag on general conditions, the labor market continues to hold up remarkably well... The consumer -- despite abysmal sentiment readings -- seems to be hanging in there, although they're doing so at the expense of their savings (the rate now down to the lowest in 18 years). I.e., they're not panicking just yet, they're instead saving less in order to keep up their spending -- while paying ever-rising prices.

We maintain that a Mid-East resolution coming soon would likely give quite the boost to animal spirits, one that markets would initially cheer... The underlying inflation dynamic, however -- being a structural affair in our view -- will no doubt keep us on our toes going forward.

Here's your weekly read*: 

Morning Note

This headline caught my attention yesterday:

"Iran's President Pezeshkian and Iran's Parliament Speaker Ghalibaf are dissatisfied with the manner in which diplomacy is being conducted, particularly the nuclear negotiations, by Abbas Araghchi, and are calling for his dismissal - Iran International, citing two informed sources."

I then said this in our internal chat:

"I woke up this morning thinking that re-escalation is highly likely, imminently, for obvious (headline) reasons... The above however is telling; if true, Iran could be close to rolling over on the enrichment standoff... That would do the trick."

Then we get this today:

"Iran handed new proposal to Pakistani mediators to end the US-Iran war, contents unclear."

While that last headline sorely lacks detail, oil rolled over (down 3% as I type) on its release... Suffice to say that the market sees Iran submitting terms, amid the US's firm stance on uranium enrichment, as potentially significant... Time will tell.

In the meantime, here's your brief morning rundown*... I'll have much more for you on the macro front over the weekend:

What's Still Working, What's Still Not, And Why (video)

Dear Clients, this is a brief, yet important video to take in when you have a few minutes...

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note

Despite the Dow 30 being essentially flat on the session thus far (7:50am PDT), this morning's tape is predominantly red... US tech and industrials are getting hit particularly hard, down 2.7% and 1.6% respectively, while gold and the the commodity complex (save for energy) are getting hammered as well so far this morning.... On the plus side, energy, consumer staples and healthcare are catching a bid.

As noted in yesterday's and the weekend's commentaries, this week is big -- and potentially market moving -- on a number of fronts.

As for this morning's action, the following synopsis* does a good job breaking it down:

Morning Note

Per this morning's rundown below, there's a lot to cover this week... Of course the primary focus at the moment is the Middle East.

It was reported yesterday that Iran has submitted a proposal that would include an ending of Hormuz blockades, but a delaying in negotiations around their potential nuclear capacity... The oil market (up 2%) reads it skeptically this morning, while stocks are essentially flat, as the US has yet to issue an official response... One might argue -- despite oil's reaction -- that no immediate refusal means there's serious consideration being given.

BCA's view is that Europe, for example, can withstand only a few more weeks of Hormuz closure, while the US can sustain a few more months... They're clearly referring to the economic ramifications (per our weekend note, the economy -- while anything but robust -- is hanging in there for the moment)... The political ramifications of persistently higher energy prices may be a different calculation altogether.

Here's your morning rundown*:

Resilience, Incentives and Current General Conditions

Per the rundown below, general conditions continue to hold up better than one might expect given the present geopolitical state of affairs.

I listened to the President comment this week on how he had figured that the stock market would be down 20-25% once the war got started -- he then touted its counterintuitive ascent to all time highs (which I contextualized for you yesterday)... That (his minus 20-25% prediction) is actually understandable, as, when I think about market reactions to the policy shifts and/or threats (be they from the Administration or from the Federal Reserve) throughout his first term and this one to date, that's about the level of decline where the presumed cause got reversed, or notably diluted, and thus allowed markets to bottom and ultimately recover, in impressive fashion.

Therefore we have to ask ourselves, is the market holding up due to strong fundamentals and earnings outlooks, or is it all about the belief that the powers-that-be are not remotely inclined to experience any deep or lasting financial market pain? Or a bit of both?

Morning Note

Lots of ink being spilled (that's old school talk) of late in celebration over the S&P 500 hitting a new all time high... Well, alas, if we peek a bit below the headlines, we discover a somewhat less-celebratory reality.

One of the first places -- alongside determining if the recent ascent has been earnings-driven or multiple-(meaning the price in the price/earnings multiple)-driven, and interpreting the signal -- I go is to the underlying breadth readings... Which, at current, are nothing to celebrate.

Today is a prime example... As I type the S&P 500 is up 0.42% while 326 (60+%) of its members are actually in the red on the session... The Nasdaq is up over 1% while 54% of its members are trading lower.

Bigger picture, while, again, the S&P 500 sports a new record, literally 462 (92.4%) are actually trading somewhere below (notably below in many cases) their 52-week highs.

My point being, this is not the kind of action that has us feeling confident that the worst for now is over.

Now, all that said, I do maintain that, in the near-term, an end to the Iran conflict would very likely bring animal spirits -- and market breadth along with them -- roaring back to the market.

Speaking of animal spirits, this morning's release of the widely followed University of Michigan US Consumer Sentiment Survey showed its lowest print on record!  

Here's your morning rundown on the latest Middle East developments, etc.*

Morning Note

As I seem to repeat almost daily, economic and political reality virtually demand that the present dynamics around world oil supply find resolution in the not too distant future.

The key word there being "world."  

While, as it is often expressed by US officials, the US is significantly energy independent -- well, actually, what officials tend to say is that we are "entirely energy independent" -- in reality, believe it or not, we are not a net-exporter of crude oil, we actually import more than we export -- to the tune of 2.2 million barrels a day last year in fact... Put correctly, the US is indeed a net exporter of energy products (nat gas, refined products, etc. combined), but, under present circumstances, the crude oil distinction is worth acknowledging.

Where "world oil supply" is key is that, make no mistake -- while, again, we are anything but immune -- the rest of the world's net-importers (while they may not be facing the immediate political risk the US Admin presently is) have to be fearing the pinch even more so... I.e., we expect to see other nations step in, and step up, their participation in the negotiation process -- a la South Korea this morning:

Morning Note

While, ultimately, we need to be thinking about, and be guided by, the longer-term global macro setup, along the way we have to take the near-term into account as well -- and, if only at the margin, adjust accordingly… Particularly when near-term dynamics could ultimately morph into something consequential for the long-term global macro setup.

We’ve maintained from the get-go that the economic, and, thus, the political ramifications of a protracted Iran war are too dangerous for the powers that be to accept… Which doesn’t mean of course that it can’t happen, it just means that the political incentives and constraints make it a resoundingly undesirable affair.

Hence, among others (see below), this telling headline from this morning:

“Despite high levels of mistrust on both sides, mediators and people familiar with the talks say the two sides have been engaging in ideas that could point to compromise around core issues like Iran's nuclear program - MS Now Reporter.”

Here's your morning rundown*:

Morning Note

After opening in the green, US major equity averages have turned marginally south as I type (8am PDT), with all but 2 sectors trading lower -- materials, industrials, healthcare and utilities notably so.

The headline risk of course remains Iran, with them not yet confirming a willingness to resume negotiations in Pakistan tomorrow... Fed Chair nominee Warsh is also getting the attendant Capital Hill grilling this morning, which -- to the extent he suggests he'd be tough on inflation -- I suspect could add to today's volatility as well... Gold, which is trading mostly as an interest-rate-sensitive asset of late, is getting hammered this morning.

Per the below, despite feeling it a bit this morning (given the sector, regional and precious metal pain thus far), our overall allocation is durably positioned for times like these.

Here's your morning rundown*:

Morning Note

Our main current conditions message over the weekend was the following:

“…should geopolitical conditions improve -- political incentives virtually demand that they do -- heading into the back half of the year, it makes sense -- heavy volatility (and inflation risk) notwithstanding -- to remain on-balance constructive on the economy, and on risk assets for the time being.”

Fluid, Frustrating, Yet We Remain Fundamentally Constructive

Per the below, general conditions continue to deteriorate at the margin... Nevertheless, we remain constructive on markets, particularly if the geopolitical setup continues to improve.

I mentioned yesterday that we weren't taking the latest positive tone/headlines for granted, and that "this is an extremely fluid situation, subject to change on a dime."  Which, per the following, has been frustratingly borne out since yesterday's note:

Important Morning Note

Markets are celebrating Iran's announcement that the Strait of Hormuz is now fully open during the ceasefire... While the US, however, has stated that its blockade will continue as negotiations move forward.

We came into the year positioned for geopolitical tensions (tariffs included) abating -- and fiscal oomph appearing -- as the mid-term election approaches... In the meantime, the Iranian conflict of course has called the geopolitical element of our thesis notably into question, which in turns threatens the fiscal element... It's been estimated that, for example, higher gasoline prices will effectively absorb the record tax refunds that are now beginning to flow into consumer pockets.

Morning Note

Per the below, the S&P 500 recaptured 7000 yesterday, however the breadth was, let's say, uninspiring... I.e., roughly 60% of its constituents were actually red on the day -- and while the index presently sports an all time high, over 40% of its members are still down on the year, with half of those by more than 10%.

So, while we're not complaining -- we're finding bargains here and there as a result of the messy action thus far -- and while we remain constructive if geopolitical waters begin to calm very soon, this is no time just yet to be letting the pigeons loose.

Here's your PWAI morning rundown:

Morning Note

In my weekend note I cautioned that if nothing changed around Iran sentiment market pain would be felt come yesterday morning. 

Well, at the open, stocks were indeed lower (though not nearly what futures were pointing to the night before), however, by the close, the major averages were nicely in the green.

While, per the below, there's no peace deal to trumpet at this point -- it's clear that for the moment both sides are in the mood for one.

Weekend Note

For those of you who track markets, and your portfolios, daily, if nothing changes between now and tomorrow's open, look for the equity market to give back a notable chunk of last week's gains (save for equities tied to the energy space).

As I type (9:36am PDT Sunday 4/12), oil is spiking higher/stocks lower in synthetic markets... Gold -- priced in crypto (which allows us to track it during weekends) -- is trading down notably.

Morning Note

We addressed stagflation (weak economy/rising inflation) risk in a video or two last year as conditions developed -- which was nevertheless not our base case heading into 2026... Although we had been flagging the inflation/interest rate risk that we felt could accelerate in the back half of the year... All the while our view of economic conditions remained constructive, largely due to fiscal oomph coming from record tax refunds and the OBBBA (One Big Beautiful Bill Act).

Now, however, per the PWAI narrative below, stagflation is suddenly a front-and-center, albeit potentially transitory, concern:

Quick Morning Note

In yesterday's note I asked you to recall our past commentary around sentiment and positioning; the message being how one-sided sentiment and positioning gets fiercely unwound when events or conditions throw cold water onto the market crowd... That happened yesterday.

Today, on the other hand, reality says "not so fast."  As markets digest yesterday's gains and grapple with the latest Middle East headlines.

Here's this morning's (at 8:02am PDT) succinct summary generated by our proprietary analytical engine (PWAI):

Important Morning Note: "Reprieve, Not Resolution"

Despite this morning's impressive rally, the ceasefire agreement itself is anything but a risk-on greenlight for markets -- other than for the obvious initial flow/position-driven spike higher (recall our past missives on sentiment, options dealer positioning, etc).

Here's our PWAI overview of the latest developments and our core allocation response this morning:

Quick Morning Note

Suffice to say that if markets hate uncertainty, while the year-to-date action in equities has indeed been negative, it could be a whole lot worse... Which of course is a distinct probability should present geopolitical conditions become a protracted affair.

Here's the succinct take on current events and our core allocation this morning generated by PWAI, our proprietary analytical engine:

Deteriorating General Conditions

This week's scoring of our recently-revised -- increased our featured data points to 68 from 43 -- PWA Index shows a marked deterioration in overall general conditions.

Here's the succinct assessment produced by our proprietary analytical engine:

"Timing is everything" -- And -- What If the bulls (on the economy) have it right?

I sympathize with the following from MRB Research's latest analysis:

"The outlook for capital markets is close to being binary, with the most likely scenario an easing of Middle East tensions in the near term and a rebound in asset prices. However, with the potential imminent landing of U.S. military on Iranian territory, there is a non-trivial risk of a severe escalation in the regional war that would almost certainly trigger widespread selling pressure. 

We are convinced that the U.S. seeks an offramp to ease tensions, but to a considerable extent, the global economic outlook hinges on whether and to what extent flows of energy and other commodities through the Strait of Hormuz normalize1. Timing is everything.

Quick Morning Note: Noisy by definition!

The budding narrative that sent stocks soaring Tuesday, with some follow through yesterday, got abruptly turned on its head last night.

Reuters this morning:

“Hopes for a swift end to the ​Middle East war faded on Thursday after U.S. President Donald Trump vowed more aggressive strikes on Iran, sending oil prices back well over $100 a barrel in a blow to consumers around ‌the world.”

Me yesterday, referring to Tuesday:

Brief Morning Note

I'm on the road this morning, so I asked our AI engine to draft a succinct macro note.

But first, with regard to yesterday’s market action, while the rally was impressive, and relatively broad-based, positioning and sentiment was notably bearish going in… Thus, that upside move was no doubt exaggerated via short covering, options dealer positioning, etc… Not to discount the message of the market, just putting the extent of the move into its proper context… The second paragraph below is key to the near term set up.

Here you go:

Client Brief | Macro Developments — April 1, 2026

Global manufacturing data out of Europe this morning delivered a meaningful upside surprise, with Germany's PMI printing at 52.2 against a 51.7 forecast and Switzerland beating by over six points — both readings consistent with an economy absorbing the energy shock better than consensus feared. The eurozone's unemployment rate held near historic lows at 6.2%, and purchasing manager surveys across Italy and France showed continued expansion. Separately, the U.S. dollar is showing early signs of weakening after its conflict-driven safe-haven rally, with the euro climbing to 1.1601 against the dollar — a Reuters survey of economists this morning explicitly flagged the expectation that the war-driven dollar rebound is beginning to fade.

On the geopolitical front, the most consequential development of the day is a quiet but significant one:

Quick Morning Note

Contradictory signals hitting the tape this morning... 1. The Wall Street Journal is reporting that the President told aids that he's willing to end the war without opening the Strait of Hormuz... 2. Hegseth, while claiming that regime change in Iran has been accomplished, implies that strikes will be stepped up this week, in "decisive" fashion... 3. Headline: "Iran sets giant oil tanker ablaze off Dubai."

The market is clearly leaning into Trump's comment for the moment, and interpreting that "decisive" means conclusive in the very near-term, and, for now, leaning away from the implications of Iran's simultaneous strike on the oil tanker.

Morning Note

Very interesting action this morning... While one session does not nearly a trend make, those intuitive correlations among asset classes I've been talking about that haven't played out so far, are playing out this morning.